Back in the days of Japan’s blistering economic growth between the 1960s and 1990s, environmental concerns were low down on the priority list.
Pollution levels hit dangerous levels in many of its industrial cities which led to cases of severe ill health among the local population. In recent times, however, attitudes have significantly changed as companies place increasing value on sustainability – and sustainable real estate development.
Now the country’s efforts, formalized through various energy efficiency and green building programs, are bearing fruit. Japan has become a leader in the sustainable real estate transparency space and joined a group of highly transparent countries including France, Australia and the UK, according to JLL’s Real Estate Environmental Sustainability Transparency Index.
Learning from the past
Naoko Iwanaga, Manager at JLL Japan says that multi-pronged initiatives in Japan are “helping to shape real estate developers’ and investors’ sustainability agendas”.
While the oil shocks of the 1970s may now be a distant memory, external events still very much play a part in driving the move towards greener thinking. The Japanese earthquake and tsunami of 2011, for example, pointed to the need for rational use of energy.
“Since then the government has been taking measures to realize a Sound Material-Cycle Society,” Iwanaga says, referring to a society that controls its consumption of natural resources and helps to reduce environmental impact by minimizing waste and ensuring its proper disposal through reuse and recycling.
Making sustainable practices a legal requirement
Earlier this year, the Japanese government passed the Act on Improvement of Energy Consumption Performance of Buildings with the aim of improving already low carbon emission rates in the country. This requires new non-residential buildings with an area of at least 2,000 square meters to conform to minimum energy consumption standards. Moreover, “the developer cannot commence construction without conforming,” Iwanaga adds.
She highlights the Building Energy-efficiency Labelling System (BELS) for the non-residential sector based on primary energy use as another example of new sustainability tools driving change in Japan.
“BELS has been in practice for two years now, and provides clear benchmarks for energy efficiency in real estate projects,” she says.
The government also recently published clear guidelines for landlords and tenants concerning voluntary green lease clauses. All of this is further supported by Tokyo’s cap-and-trade program for carbon emissions of large developments, which was introduced in 2010 and sets a 25 percent reduction target for carbon dioxide emissions by 2020 compared to 2000 levels.
Private sector steps up
Businesses have also supported the charge towards sustainability. Green building rating systems such as the internationally recognised Leadership in Energy and Environmental Design (LEED) standard and the locally developed Comprehensive Assessment System for Built Environment Efficiency (CASBEE) are widely followed and take into account Japanese commercial and cultural norms. Even real estate financing has made the shift. Major banking corporations such as the Sumitomo Mitsui Banking Corporation and Development Bank of Japan (DBJ) have rolled out programs offering preferential interest rates for real estate projects that meet their own sustainability standards. As of April 2016, DBJ had certified 324 buildings with a total floor area of 17 million square meters, of which 40 are commercial buildings of over 3 million square meters).
According to Iwanaga, investors are taking note, increasingly adopting environmentally responsible strategies, focusing on projects with sustainable assets and incorporating energy-saving initiatives into real estate maintenance.
All this is bringing about a virtuous circle. “There are already tangible results in the leasing market in the form of increased demand from corporates to occupy sustainable real estate and the provision of such space by landlords,” says Iwanaga.
She adds that based on estimates from the Global Real Estate Sustainability Benchmark (GRESB), leasing agreements that incorporate green lease terms have increased in Japan from a limited number of instances in 2014 to 36 percent of all leases in 2015.
Japan’s real estate sector will not rest on its laurels. Over the next three to five years, the industry is expected to move towards developing the Environmental or Sustainability Performance Index to track the financial performance of ‘green’ real estate investments, which will help improve sustainability transparency further.
As Iwanaga says: “It is a rare tool available in some countries globally, which helps market participants assess the relative performance of more environmentally robust assets”.
She believes that green development can be incorporated through the entire life cycle of the building by “adopting green building standards upon development, green lease clauses upon leasing and responsible property investment principles upon investment.”
“Together with the major steps that the country has already taken this will ensure that Japan moves ever closer to a more sustainable built environment,” she concludes.